Participation of non-bank entities in govt debt mkt rose during pandemic

The report also found that non-bank investors are more sensitive to changes in government securities yields compared to their banking counterparts

The participation of non-banking entities in the government debt market was accentuated during the pandemic period, according to the monthly bulletin by the Reserve Bank of India. Banks remain the leading players in the market, the report stated.

The total ownership of government debt securities among non-banking entities increased by 9 per cent, reaching 64 per cent in December 2022, up from 53 per cent in March 2009.

Furthermore, the report indicated that the share of commercial banks in government-dated securities contracted to 36 per cent by the end of December 2022, down from 47 per cent in March 2009.

 

“Over time, there has been a commensurate increase in holdings among different investor groups, leading to an overall rise in outstanding marketable debt securities. However, investors such as foreign portfolio investors and mutual funds have experienced faster growth in their holdings compared to the growth of the total outstanding debt,” the report said.

The report further noted that non-bank investors are more sensitive to changes in government securities yields compared to their banking counterparts.

According to the bulletin, for a 1 percentage point increase in yields, domestic banks increase their debt holdings by 9.8-10.2 per cent, while non-banks exhibit a higher response, increasing their holdings by 10.8-11.1 per cent.

The cost of borrowing in the government debt market increases by 8.1 per cent when banks absorb fresh funds in the market compared to when the funds are absorbed by non-banks, the monthly bulletin reported.

“It is observed that when all the new debt is absorbed by banks, the increase in yield is, on average, 8.1 per cent higher compared to the scenario where all the debt is assumed to be absorbed by non-banks,” the bulletin observed.